Giants’ Shadows: How Small Nation States Cling to Powerhouses for Survival

• Historically, small nation-states have depended on patron nations to sustain their status as independent entities.
• The experience of Nepal, an import-dependent economy that sources around 65% of its goods, including fuel, from India, illustrates the risks inherent in such reliance.
• Given the disparity in size between Australia and New Zealand, the relationship is notable for being structured around partnership rather than subordination, demonstrating that asymmetric alliances need not be based on dependency alone.

Amidst an asymmetric global environment, small nation-states frequently tie their survival to the capabilities and support of major powers, whether that is through financial support, security provisions, or internationally sanctioned trade channels and routes. Many of these small nation-states enter a complex web of reliance and autonomy with large nation-states, a dynamic that creates interdependent relationships among them. 

The Historical Basis of Reliance

Historically, small nation-states have depended on patron nations to sustain their status as independent entities. In the late 1800s, several European micro-states, such as Monaco and Liechtenstein, relied on neutrality agreements with France and Switzerland, respectively, to preserve their independence. In the post-colonial period, Bhutan entered into a Treaty of Friendship with India in 1949, under which India committed to safeguarding Bhutan’s independence by assisting in the development and execution of its foreign policy and providing military support against external threats, most notably following China’s annexation of Tibet in the late 1950s. 

Using this precedent to evaluate the continued reliance of small nation-states on their patrons (the bandwagoning strategy), it is clear that since small nation-states do not possess the size and scale necessary to support themselves, they face a significant risk of either being absorbed into a greater nation-state or experiencing instability.

Economic Lifelines – Aid, Investment & Market Dependence

Economics forms the foundation of dependency for Bhutan. Bhutan, a landlocked nation with approximately 800,000 inhabitants, relies on India as the primary market for over 70% of its electricity hydropower exports. Additionally, India grants and loans to support Bhutan, covering 50-60% of its government expenditures. Bhutan’s economic health directly experiences the impact of New Delhi’s fiscal and policy priorities.

The experience of Nepal, an import-dependent economy that sources around 65% of its goods, including fuel, from India, illustrates the risks inherent in such reliance. In 2015, an informal trade disruption following Nepal’s adoption of a new constitution led to acute fuel shortages and sharp price increases, demonstrating how trade dependencies can be leveraged as instruments of coercion. Although China has invested more than $500 million in infrastructure through the Belt and Road Initiative to counterbalance Indian influence, these measures did not prevent severe short-term economic dislocation in Nepal.

Economic Dependencies 

The Military Asymmetry of Security Blankets Protecting Nations

To counterbalance the military asymmetry between China and its two neighbouring countries, India has stationed troops in Bhutan, defining aggression against Bhutan as a casus Belli to deter Chinese activity along Bhutan’s 470 km border with China.

Bhutan has a military force of only 8,000 troops; its defence establishment relies heavily on Indian training, logistical support, and equipment, enabling it to manage persistent military pressure in the region.

Australia and New Zealand provide a contrast, as both countries share a longstanding ANZAC heritage. Despite Australia’s population being 25 times greater than New Zealand’s and thus Australia’s military dominance, following the ANZUS fallout, New Zealand continues to have access to Five Eyes intelligence sharing and joint military operations with Australia. As the tensions in the Indo-Pacific grow, Australia is strengthening New Zealand’s defence capabilities through the AUKUS ripple effects, while New Zealand is hedging those relationships through involvement in forums in the Pacific.

Estonia, Latvia and Lithuania are similarly reliant on NATO. Facing persistent hybrid threats from Russia, the three states host U.S. and German rotational battle groups under Article 5 of the NATO Charter, providing deterrence against further escalation through formal alliance-based security guarantees.

Security Alliances Snapshot

Trade Corridors – Gateways and Chokepoints 

Trade often creates and entrenches vulnerabilities. Mongolia is squeezed between Russia and China; it imports 90% of its energy from Moscow while shipping out 80% of its minerals to Beijing, relying on their respective rails and pricing power. Luxembourg, while small, leverages its membership in the European Union and proximity to Germany and France to sustain its financial exports.

Australia accounts for approximately  (25%) of New Zealand’s exports, while providing capital to contribute to the New Zealand Superannuation Fund,  established under the 1983 Closer Economic Relations agreement. However, New Zealand is also diversifying its trade relationships via the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to mitigate the indirect effects of tariffs Australia has imposed on China.

The following case studies further illustrate these dynamics.

Bhutan & India

The India–Bhutan relationship is an illustrative example of mutual dependence. From an economic perspective, Bhutan relies on Indian-funded hydropower projects that generate export revenues primarily from India, enabling Bhutan to finance imports of essential goods. During the 2017 Doklam standoff with China, Indian troops intervened to support Bhutan’s territorial claims, underscoring the central role of security cooperation in the bilateral relationship. Trade between the two countries is highly asymmetric but remains beneficial to both. At the same time, Bhutan has sought to modestly diversify its economic exposure by attracting Chinese tourists, even as border negotiations with China are deferred until 2026. This “special relationship” reflects elements of patronage alongside a sustained foundation of goodwill.

Equal Partnership Between Australia and New Zealand

New Zealand is an equal strategic partner to Australia. The two countries have established a highly integrated trade relationship through the Closer Economic Relations (CER) agreement, enabling the free movement of investment between Australia and New Zealand in sectors such as technology and dairy.  They also cooperate on security through the Five Power Defence Agreements, which helps mitigate the risks both countries face in their region. 

New Zealand maintains an independent foreign policy that enables continued trade with China, which makes up 30% of its exports, despite Australia’s more hawkish stance toward China. Given the disparity in size between the two countries, the relationship is notable for being structured around partnership rather than subordination, demonstrating that asymmetric alliances need not be based on dependency alone.

Navigating the Future: Strategies in Uncertain Conditions

Small countries can combat dependence by diversifying their economies. For example, Singapore’s tremendous success as a global port and its active participation in multilateral agreements (i.e., the UN and the WTO) allow smaller nations to build leverage against larger powers while reducing vulnerability through strategic hedging. Other ways include innovating in niche markets and building relationships with strategic partners.

However, emerging global turbulence, including heightened Russian military activity around the Baltic Sea and the formation of U.S.-led technology alliances, introduces uncertainty over the long-term effectiveness of these strategies, demanding astute diplomacy.

Parag Gilada

Parag Gilada is a Mukherjee Fellow who has recently graduated from the Jindal School of International Affairs with a keen interest in Sports Diplomacy. Views expressed are the author’s own.